Colombia Considers Measures to Aid Its Battered Oil Sector

Government Seeks to Mitigate Effect of Falling Oil Prices and Other Factors Hurting Industry

By

Sara Schaefer Muñoz

Jan. 30, 2015 1:14 pm ET

BOGOTÁ, Colombia—Representatives from the country’s energy ministry and hydrocarbons agency met on Thursday to come up with an action plan to assist Colombia’s battered oil sector, as the share price of the country’s largest independent oil company plunged.

“We are committed to facilitating exploration and exploitation in Colombia, so we have to look for a way to make it viable,” said
Javier Betancourt,
departing director of Colombia’s National Hydrocarbons Agency, which manages Colombia’s oil and gas resources.

He declined to give details about the proposed measures. But people with knowledge of the talks said possibilities on the table, which aim to mitigate the devastating effects of falling world oil prices on an important Colombian industry, include a reduction of the country’s stake in oil-company projects, allowing more revenue to flow back to companies and reducing the time it takes to get environmental approvals from around 16 months to under a year.

Officials are also looking at giving companies more time to discover oil before exploration and production blocks must be handed back to the state, the people said.

The government’s moves come amid a storm of factors hitting Colombia’s oil sector, including heavy company debt, a lack of new discoveries and the nearly 60% fall in petroleum prices since July.

Colombia’s two main producers have suffered, with shares of state-controlled
Ecopetrol S.A.
EC -1.55%
falling 52% since mid-July and those of independent
Pacific Rubiales Energy Corp.
down 85% in the same period.

On Thursday, Pacific’s share price hit a historical low of $2.79 Canadian dollars a share on the Toronto Stock Exchange. The price edged up on Friday morning to $2.90.

The woes of the sector are a blow to the Colombian government, which receives some 20% of its revenues from oil. Members of congress and economists say the country needs a robust tax-take to support a peace process with Marxist guerrillas, which is expected to be signed later this year. They estimate the costs of implementing the peace process, which includes retraining thousands of rebel fighters and compensating Colombians who lost land and family members in the conflict, could cost tens of billions of dollars.

Oil-sector leaders have been pushing the government to take action to help the industry. “I hope they make some decisions to incentivize a sector that generates so much revenue for the country,”
Ruben Dario Lizarralde,
president of industry trade group Campetrol, said at an oil conference in Bogotá last month.

Pacific Rubiales, who has seen its share price collapse 97% since 2011, when it was a Wall Street darling, has made its own requests to bolster the company.

Part of the reason the selloff in Pacific stock has been so dramatic, analysts say, is because the company must turn over its productive Rubiales field to Ecopetrol in 2016 under a previous agreement. Many investors wonder how Pacific will replace that source of production.

Addressing that concern, Pacific last month asked Ecopetrol for a new contract for it to keep operating in the field jointly with Ecopetrol, using a technology known as Synchronized Thermal Additional Recovery that heats oil found inside wells, which in Colombia is some of the world’s thickest, to increase the amount that can be removed.

An Ecopetrol spokesman said the board of directors is considering the request. People close to the matter say a decision could come in the first quarter.

Frederick Kozak,
a spokesman for Pacific Rubiales, declined to give details of the company’s proposal, which isn’t public. But he said that if Pacific and Ecopetrol work together in the Rubiales field using the STAR technology, the companies could extract around 30% of the dense oil there, a figure based on independent analysis of a recent STAR pilot project. Usually, the recovery is around 15%, he said. “It could be good for us, good for them and good for the country,” Mr. Kozak said.

If the contract isn’t granted, he said, Pacific still produces oil elsewhere and can sell roughly $1 billion worth of noncore infrastructure and other assets to keep the company moving forward. “If we can continue in the Rubiales field, it would remove some uncertainty,” he said. “But we still produce 100,000 barrels a day outside the Rubiales field, which is not immaterial.”